Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, what we thought was asymmetric relationship having become even more asymmetric. Clara Fererra Marquez on the Sea putin meeting than just how detrimental sanctions are proving to the state of the Russian economy. Later, justin focus on what the slow decline of one industry is telling us about a change in US labor force. First though, two markets digesting but not very easily more ominous inflation data. Jerry J. Powell at the Cato Institute Inside of next week's f o MC meeting, we need to act forthrightly, strongly as we have been doing, and we need to keep at it until the job is done. We think we can avoid the kind of very high social costs that that Paul Volker and the FED had to bring into into ploy in order to get inflation back down and set us up then for for a long period of price stability. Bloomberg Opinions. John Authors joins so John, the week started out well. Market seemed to be treating the Russia retreat the Ukraine advance. Perhaps it was something soothing in their that there might be some geopolitical stability, but then came the inflation data, and equities literally embarrassed to put a blunt this was This has been one of the most striking bona fide macro surprises in many years. I would say the I was personally surprised by how poor the inflation numbers were, But it's also very strange to me how markets really had convinced themselves that the peak was definitely in and that more or less any inflation number was going to be consistent with the steady, steady decline from here, which thankfully I did point out before it happened that this seemed over confidence. One decline does not make a trend. Yes, and then they had basically set themselves up to step on a rake like in the cartoons, and whacked themselves in the face of the rake handle. And that's basically what happened. That said, I was also my self surprised by quite how thoroughly awful the flation numbers were once you dug into them. Yeah, I mean, and you point us out, how you know, the various head banks and other outward to put out different measures for core inflation, and it had made it seem like core inflation was under control. But actually all of those measures now sticky price inflation, trimmed, media or rising. Yes, and that's really not what very many people at all had been expecting. So these are all the numbers that a year ago, when we were still having a debate about whether this was transitory, people were pointing out, look, these core versions of inflation still aren't that high. This is transitory, and that was a valid argument then, and unfortunately what's now happened to those numbers shows this is really going to be difficult to bring down. The other critical thing, I suppose is services inflation, and goods inflation is indeed coming back down. Services is coming up by more than enough to counteract it. Services is a much more important part of the economy than it used to be. That is again very disappointing for many people who are hoping to see something different. Now markets are pricing in the potential for a one hundred basis point in this next week. Is that a little too far fetched? I mean, it was the CPI that made the Fed move last time. It was there is nothing more important than the CPI for the Fed at this point. Obviously, unemployment is still at such an encouraging level. The labor market is so strong that that provides no reason for them not to hike. It's all about inflation at this point. I personally think that hiking by the full hundred basis points would carry some risk of looking as though they're running scared, desperate and could therefore undermine itself. So I would bet if I had to even odds on a seventy bits rather than a hundred, we will probably if they want to make it a hundred, they will find ways to leak it to our colleagues or competitors between now and the announcement. So I'm not sure it's worth spending too much time agonizing over that because it's probably going to become clear. The key that bothers me, which I don't think has been looked at carefully enough, is how quickly can the FED turn around and start cutting. There has been a belief, which isn't an unreasonable one from from what we've lived through in the last decade, that there would be problems with either employment or with a sell off in stocks would prompt the FED to retreat pretty quickly. That argument seems flimsy these days. I am almost inclined to say it's gone. I mean, immediately after the last fo MC meeting, FED funds futures were priced so that the rate in January of four would be lower than the rate it's going to be by the end of this month, which is a remarkable suggestion that this is a transitory tightening, effectively, that we're going to be that far into reverse by then. At this point, I think it's the suggestion is that will still be a good percentage point higher that this is a so that probably is more important for the long term than whether the Fed decides it really needs to hurry up even more and go with a hundred. It's it's how long they have to stay at how higher level and how long are they giving these rate hikes to work, because we all know that it takes time, and it works in different parts of the economy at different rates and so on, And what are they looking at to see is it working in the broader economy? I mean, what does the seventy five basis point hike entail when it comes to filtering down through the banks and through the system and through loans and so on. Well, I guess the critical point for that is on shelter inflation the housing market. So yes, oil is more or less beyond the fits per view, particularly with the geopolitical uncertain at the moment. Shelter whether you're renting or buying, is so dependent on the rate at which you can take out of mortgage. That is a rate that shelter inflation is increasing. Worryingly, we all know that there are various markets that look quite bubbly for buying, which are already seemed to be turning. The FED needs to be sure that it's got the housing market back down again before it can desist. I think, and I suppose it has the double advantage Festival. It's a third of the index in round numbers, and secondly, it's the one where monetary policy really unambiguously has a direct effect. I think you need to see that trend reverse. People talk about real estate a lot when they know anything about it. Otherwise they talk about a lot. How much higher rates deter people from buying, cause people to stop putting houses on the market, all the rest of it is probably the single greatest issue for us CPI at this moment. John, do you see a scenario at all were inflation continues to rise even as the Foe continues to hike. I mean, that's basically what we got this month. Could we get it again next month ahead? I need to come down very slightly. Yeah, I can imagine that. I think it's unlikely. I would still, barring something horrible in Ukraine, I still think the peak for headline inflation is probably in because of oil. It's difficult for it not to be. If inflation stays like this for another couple of months and you get another round of wage negotiations coming at the turn of the year, I can imagine headline inflation getting above its peak. From earlier this year, we are starting to see that wage price spiral a tiny bit, and we were seeing Amazon pony up now a little at least for seasonal delivery. Drivers were seeing more and more strikes across the country. That I mean, that's one of the fascinating, imponderable questions is obviously the balance is going to move from capital to labor to some extent, but the balance has moved a quite remarkable way towards capital, and unions are weaker, less able to assert themselves than they've been in a century or so. That means that you can perhaps overstate how much that effect is going to happen, and membership is still tiny relative to the labor force. I think wage pressure is on balance likely. But again, this is one of the imponderables we'll find out about this country exactly how intense that is and how far it takes inflation. So, John, what is the question that for J. J. Powell is pondering tonight. I do feel somewhat sorry for him, and I'm very glad I'm not a central bank here. He has been so good as to admit that the FED made a mistake last year. That colleague Mike mackenzie was commenting earlier today that saying that inflation was transitory last year is going to go down with the subprime market is contained from two thousand and seven. They all got one, you get one, yes exactly. He probably will be giving some thoughts to I don't think that's his greatest one. It's about how they signal for the future. I think the dot plot where the FED governors can use it as a signal for their intentions. We get a new dot plot next week. I suspect that the Fed will take the chance to tell the market listen, you are wrong. We do not think we are cutting next year at all. And if you see a dot plot where their expectations for the Fed funds rates for the next few years rises significantly, that could be another really tough moment, tiny bit of chatter about England. If you wouldn't mind, you're just back. Yes, and you obviously saw a transition. He saw the transition from Boris Johnson to Liz trust I was I saw that. I saw that transition, and I came home just before another transition from another Liz. Yes. Yes, there are over sixty million of us to choose from, and apparently Liz trusses right best we can manage for being Prime Minister. So and now it's her chance to see what she can do. Obviously, the Queen's passing is a big moment. It can only be plenty of opinions about it, but it's a big deal. It was quite big of her to shake hands with me Guinness thinking through. But if we could go on to further this, let's let's not talk about the rather vexed awful history of Britain and treatment. Will she be able to carry out the policies that she's promised. My best guess is that she won't that promising tax cuts was I hope she's going to surprise me positively. I took a dim view of the way she handled that campaign because she was basically promising something she was plenty clever enough to know that she wasn't going to be able to deliver. Yes, she must have known, and you know that's distasteful. Quasi quatteng another bright guy. He was a really guy before, Yes, and you know, very talented guy who knows what he's doing. I imagine we have a very difficult situation, a very febrile situation that does give him a certain amount of room for maneuver, a certain ability to do something completely different from what was expected if the circumstances demand it. I mean, how garsenals what in place is going to be next year in the UK, But I mean we could. I mean, the UK has very particular, serious reasons to be worried about inflation, some of them self inflicted, but let's not reopen the Brexit wounds too too widely, and some of them a matter of bad luck. The currency is under pressure and the energy. The Bank of England I think, was very commendably honest predicting that there's going to be a recession, that the economy will be smaller at the end of next year than it is now. I think it's probably right to get everybody into a defensive crouch. And I think both quasi Quatting and this drust of probably smart enough to know that if they take some pain now, the key thing is whether they can get the economy recovering enough to get people thinking the direction is correct by the next election, which doesn't have to be for over two years still, and that that is possible, and that's that's their aim. But it's whether they have enough communication ability, which I think it's fair to say this trust is greatest weakness. She is not like Tony Blair or Boris Johnson when it comes to communicating. Whether she has the communication and political skills to get the government through the next year or so when the economy is going to be really bad. I mean, the question really is does she last longer than Boris Johnson, who didn't even last long If she can't win another election, she won't at the moment. Not that Keir Starmer is exciting anybody, but Labor looks more electable than it has done since Blair. And if the economy doesn't go considerably better than seems likely at the moment. The betting has to be on labor to win bound that would be it's it's quite something. But Liz Trust this very interesting piece to As Raphael wrote, Margaret Thatcher as a minister was really very unimpressive. She was education minister. She was best known for canceling free school milk. Well, I wasn't there. I actually was Maggie Thatcher, the milk snatcher she used to be, and reasonably when I when I was five, we used to get given a bottle of milk in the middle of the morning, and when I was six that stopped. People weren't happy about children, so so she generally didn't seem to be that good a politician on the basis of how she did as a minister in the early seventies. Justice Liz Trust really doesn't strike me as being a particularly special good politician on the base of a record to date, and that helped people underestimate to people really didn't know quite what they were dealing with until and she was aware of that too. Yes, and I think Liz Trust is a very different person in many ways. But I think she is also somebody who benefits from being easy to underestimate. Bloomberg opinions, John Authors, pandemic labor force trends have been fascinating, but Bloomberg opinions. Justin Fox discovered one trend that predates the pandemic that tells us a lot about the US labor force. He joins me, Now, dry leaners closing down were literally almost at half the amount of dry leaners that we were at back in two thousands, so there were more than twenty eight thousand, then now there's sixteen and a half thousand. It points to several trends, though not just our assumptions. So let's go through some of them. Why are dry cleaners closing well? So I initially looked at it because obviously the pandemic has been really it was tough on lots of businesses when things completely shut down, and now even as restaurants are full, fewer people are going to the office, and sort of the long running trend towards dressing more casually when you do go to the office seems to, at least in my experience here at Bloomberg, accelerated over the course of the pandemic. So I was expecting that there would be this plummet at the pandemic. And then I looked at the data, and this is from the Bureau of Labor Statistics. Does this thing called the quarterly Census of Employment of Wages that keeps track of how many establishments of different kinds of businesses there are. And it definitely accelerated with the pandemic, but it's basically been dropping at about two percent a year at least for the past two decades. So you see it all around New York City. Your local laundrect closes, your local directing it closes, and it's very sad. I had always chalked it up, at least in recent years, to venture capital phones and hedgephons buying up real estate and not caring if the real estate was empty or full. But it turns out that that's not actually the main way. Yeah, I know, I mean New York. It was rising in the number of and this is Manhattan. Actually in Manhattan, the number of dry cleaning laundry establishments was rising through two thousand eighteen, sort of the opposite of the national trend, and then it dropped in two thousand eighteen and two thousand nineteen and then even more during the pandemic. I think the dropping in the two eighteen two thousand nineteen is all the e p A this new standard. Well it's not that new. It was I think put in the Federal Register back in two thousand six or two thousand seven, basically banning the use of the chemical and I'm going to say it wrong per klora whatever in apartment buildings, and lots of dry cleaners in Manhattan are in the basements of apartment buildings. You can do dry cleaning without it, and they're more and more of these sort of organic dry cleaning places that avoid it. But I think for a lot of older dry cleaning establishments that was sort of the last straw. They had to stop using it by two thousand. You also figured out that obviously some of this was a trend that we're seeing in immigration. Yeah, I mean, this is basically more hypothesis than something you can really get date on, but it is known that Korean Americans in particular are wildly overrepresented in the dry cleaning business. Um and and you know, it's just one of those classic an immigrant group comes over, develops an expertise, other family members, friends come over, I mean, the problem with the Korean American community is the big Korean immigration wave ended a long time ago because South Korea is now quite affluent and it's also not growing, really has very low birth rates, and so that immigration wave ended a long time ago. The kids of Korean American dry cleaning owners, I would guess most of them are have gone off to college and have fancy careers, and so we clearly there's this whole bunch of aging dry cleaning laundry owners who don't really have an obvious person to hand off to. How much is cost an issue, if at all? I mean, obviously we've seen a huge amount of a lation, and some of that has been services inflation. But it turns out we don't really spend that much on dry cleaning in the end. I mean, we we spend a very small amount of overall consumer spending on it. Although you know that I cite numbers in my piece, and that's just all spending on laundry and dry cleaning outside the house. Back in nineteen fifty nine, which is when the data starts, it was half of a percent of all consumer spending. Now it's point zero seven percent. Part of that is just because everybody's got well not everybody in New York, but everybody in most places has washing machines at home now. So it's less that people are doing less of whatever. It's just that it's been shifted from something that people paid someone to do outside the house to do it inside the house. Because I mean, one interesting thing is that inflation in um dry cleaning and laundry has been higher than overall inflation, and overall inflation is pretty high, and and that's been true for years, and it's definitely true over the last two years. You also found out, and this wouldn't be any surprise to anybody, that the highest concentration in the US is in New York City with twenty nine one thousand residents. The lowest, obviously, is only one point six per hundred thousand residents, and that's in Pema County, Arizona. I guess it's self evidence of why there are so many in New York. But are we seeing more of a decline in New York than we are elsewhere? I mean, it's just a totally different chart. In New York. It's it's was rising, doing really well, and then this plummet. Pema County is Tucson, So it's partly the weather and the kind of jobs there. It's not a big, really white collar jobs place, and it's tons of retirees, and you know, other places with lots of retirees are relatively low on it. One interesting place with really high number, especially of workers in laundries and dry cleaners, is Clark County, Nevada, which is Las Vegas. And I guess that. I mean that's more people washing sheets and other linens for hotels and stuff. Newberg Opinions justin Fox. Don't forget. We're also available as a podcast on Apple, Spotify, or your favorite platform. Chinese President She's in Paying made his first trip outside China and Hong Kong in three years this week. Originally, his first international trip was supposed to be Indonesia in November for the G twenty, which is extended invites to President Biden and President Putin as well. This wizard to Uzbekistan for the s CEO Summit or Shanghai Cooperation Organization gave you the opportunity to meet face to face with Russia's president and give the world an opportunity to assess China's position on the war Bloomberg's Clara Ferrera Marquez joins, Clara, what did we learn from this visit. It's a really interesting opportunity for us to take the temperature of this no limit partnership. So they had met in February, if you remember, just before the start debajing Olympics um and this is the first time that they had met since then and since particularly the invasion of Ukraine. And what we saw was an asymmetric relationship having become even more asymmetric. So we saw Putain really bending over to say that he understood what he said the Hinda's concerns, recognizing China's balanced position, mentioning all sorts of trade figures but getting really very little, if anything in return. Now, that's what we saw. But we don't know what happened behind closed doors, and likely never will. So it's quite clear that President Seas and Things wants to give signals to the international community. Is there a chance that he said something different or took a different tone with Putin behind closed doors. Well, as you say, it's that's sort of unknowable, isn't it. But it was interesting to me that there were a few really low hanging fruit that she could have given Puttin at this meeting. For example, they could have advanced some sort of agreements, even a memorandum of understanding around parrots. Siberia too, which is a gas pipeline, a really important part of Russia's shift to the east, and they didn't do that. So even though Russian officials had talked it up as being close, it didn't actually materialize. There was nothing concrete, no numbers, and I think Putin could have really done with that. However, the theater is important to allowing the two men to be seen together, you know, around a very large circular table, but all the same together without masks. I mean, all of that is very important too, and allows Puttin to play this at home. It was interesting to see Putin take the position of subordinates, because that's really what happened in the way he said that he understood Beijing's questions and concerns about his invasion of Ukraine, and he also made mention of the US and its allies movements in the Taiwan strage, which has annoyed Taiwan obviously, but that presumably was and olive branch to Beijing. In other words, is he subordinate now? Association thing. Well, I think it's certainly clear that Putain has never been in a weaker negotiating position, and I would I would really put it that way. I mean, if you think, as you say, the optics of the meeting, and it was very odd how we we we had it coming through, We had some feed and we really just saw that the initial comments where Putin was very clear to call him comrade to make all these concessions on Taiwan, as you say, talking about a foreign policy tandem, which is quite interesting word a word of China did not repeat back to him. And in fact, what we what was she telling him that he would work with Russia to inject stability and positive energy to a world in chaos. So that was not particularly well availed reminder of what she really needs, which is stability. Does it tell us anything about ss appetite for what I don't want to call it war, but some kind of operation in Taiwan. No, I think at this point that is really hard to read into this. I mean what we would say is obviously through the whole Ukraine campaign, China has been taking notes. It's learned a lot of lessons in terms of economic resilience in terms of military preparedness. I think here all we've seen is that he's willing to continue this balancing acts. He certainly won't leave Puttin in the cold, but with the policy of Congress a few weeks away, he also isn't willing to abandon his pro Russian neutrality if you call it to come any closer to Putain. Will she have promised Puttin anything? It's unlikely we'd find out if he did, or at least until we saw something on the ground, if he from some any kind of military support or anything like that. But I mean, it sure doesn't seem like he did. I think that's very unlikely. So China does not in general have allies, for example, military allies that in North Korea. UM, they are very happy to run joint military exercises as Russia joint naval patrols. They really have never signaled the desire to go any further than that. I also don't see why she would promise anything. Why Why would it be in his interest to do so? Because he is providing just enough rhetorical support, just enough verbal backing, without running the risk of incurring secondary sanctions. Clara will wouldn't change his mind about the G twenty after this, or does he have so much of an ego that he wouldn't turn up again with world leaders continued to speak, even though it's quite clear that he has to very much Paris his words. Well, the G twenty is still two months away, so it could still happen between now and then, and remember that it won't be just the G twenty. Indonesia has also invited President Vladimierzoleinski of Ukraine. I'd be very prized if the war is still ongoing. If Slenski actually tends up, it's much more likely to be a remote connection. But all the same, I'm pretty sure that Putin would not pass up the opportunity to be there in person if Zelenski is making any kind of appearance. Um, and it is very important for put In, both domestically and in terms of protection to the global South, to be part of these large geopolitical contacts. You know, he really needs to be seen to be a leader that still comes still means business. We also this week got a huge raft of new sanctions from the United States on Russia. Given Russia's unique position exporting energy. Are the sanctions that had already been placed on Russia biting enough yet. Well, I think there's a lot of misconception about how sanctions work, and I think a lot of that was due to the unprecedented nature of you know what was imposed early on. This sort of pless ora of financial and trade punishment effectively cutting off Russians never been done for an economy of this size, so people expected instant rewards, and unfortunately that's just not how sanctions work, especially when you're dealing with a major commodity exporting economy and you haven't actually sanctioned those commodities. What we are seeing now is that these things are trickling down. The oil sanctions with the EU oil sanctions will come into effect, the oil price cap will come into effect. All of that is beginning to buy. We've seen quite substantial reductions in the Russian budget. We've seen a drop in Russian energy revenues and particular in August as as the prices have come off because remember you know, the war. At the beginning, they were selling less, but the price is very high now. We also have a global cooling, global economy that is cooling. Chinese demand is coming down because of COVID lockdowns and other other factors. So it is by thing I mean that Russia, however, can sustain a lot of tate. We used a fantastic piece comparing South Africa sanctions from the nineteen eighties and what we're being today and basically painting a picture of the types of lessons we can learn from the South Africa sanctions. Give us a little bit of a summary of what you found out when you went back to look, so full disclosure. As part of the reason I did that because that's where I am from. I grew up in Caton, and I was there for thees and all this was going on. But the interest here, I think, is not to draw a sort of perfect parallel. In fact, staid earlier, there are no real perfect parallels with Russia's sanctions situation today. The interesting thing about South Africa is a that it was a commodity exporting economy, so there were lots of loopholes. But because of South Africa's fragility going into the worst of the sanctions, which really come in because of its economic fugility, was already an economy that was uncompetitive and inefficient because of variety of distortions at the side regime had introduced. The sanctions were very important. They were very important contributors because it was already dealing with this clorotic economy. And that's I think the really important message for the Russian case, which is that you are already dealing with an economy that is barely growing at one two real disposable incomes are already shrinking even before we got to the invasion. Under sanctions sort of followed. So far Russia has managed its external debts. There is a kind of constant looming default, but we never actually see Russia default on mons. Is it coming this year? I think the default here is very it's very different to pass, you know, even sort of South Africa's ciscal constraints. I mean, Russia has created to some extensive a ciscical fortress. It's not for lack of ability to pay, or rather, it's not for lack of cash, and they're not paying their debts. So I'm not sure it's it's as helpful an indicator. It's probably more an indicator of just how isolated Russia has become. What I would really watch in terms of how constrained they are is where the budget is allocated. How import substitution is going, And the answer is it's going quite poorly. If you look at the auto sector, if you look at computers and computing, anything to do with technology at the brain drain, those will really be of things. That is where we will see the real hit. We saw a huge change this week. We saw the Russian army retreating. We have proof of that. We know that Ukraine has been able to advance, and we also saw some descent within Russia, which is maybe a little bit unusual. I mean, fifty municipal leaders and perhaps more criticizing Vladimar Puddin and sort of putting pressure on him to back down. I mean, is that as huge an event as it seems? So? I think you're right. Two things have happened that are very important. One is the strategic defeat, and I think we can you know, obviously lots of things are changing on the front line, et cetera. This is still a moving picture. But the counter offensive and the speed with rich pressure has collapsed is unquestioned. The turning point in the war certainly an inflection point, and it is a strategic defeat for pushing and one that is very difficult to explain at home, and we really caught them the beginning of the week struggling to find a narrative to match this, not least because Puttin over the weekend had been completely silent on it, so he was busy inaugurating Giants Ferris Wheels. And what we saw was this surge of discontent on particular programline nationalist channels and telegram, which is um if you think about how restricted Russian social media has become. Those channels a huge following. We saw some television to some extent for people really questioning, you know, what are we doing here. We haven't even got full mobilization. We're calling this a special operation and it's not working. People wanted answers, and then we also saw the expressions of dissent, as you said, among the mayors, among the local leaders. It's still too early to say whether that will really filter through, but it has begun to put pressure on him at a time when vladmore Putin has very few answers. He needs more material on the front, he needs more manpower. Who's really running out as people, A lot of men who have done their first story of duty don't want to come back any extension of conscription will take a long time to feed through to the front. I don't think that necessarily means we're just about to press an easily a button. But suddenly he is in a pretty tight spot and we'll need to decide whether he's ready to take the political costs of the math mobilization, really putting the country in the economy on the Warford Clara Ferra marquees. That does it for this week. We were produced by Eric mollow Till next time on Booberg Opinion h

Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, what we thought was asymmetric relationship having become even more asymmetric. Clara Fererra Marquez on the Sea putin meeting than just how detrimental sanctions are proving to the state of the Russian economy. Later, justin focus on what the slow decline of one industry is telling us about a change in US labor force. First though, two markets digesting but not very easily more ominous inflation data. Jerry J. Powell at the Cato Institute Inside of next week's f o MC meeting, we need to act forthrightly, strongly as we have been doing, and we need to keep at it until the job is done. We think we can avoid the kind of very high social costs that that Paul Volker and the FED had to bring into into ploy in order to get inflation back down and set us up then for for a long period of price stability. Bloomberg Opinions. John Authors joins so John, the week started out well. Market seemed to be treating the Russia retreat the Ukraine advance. Perhaps it was something soothing in their that there might be some geopolitical stability, but then came the inflation data, and equities literally embarrassed to put a blunt this was This has been one of the most striking bona fide macro surprises in many years. I would say the I was personally surprised by how poor the inflation numbers were, But it's also very strange to me how markets really had convinced themselves that the peak was definitely in and that more or less any inflation number was going to be consistent with the steady, steady decline from here, which thankfully I did point out before it happened that this seemed over confidence. One decline does not make a trend. Yes, and then they had basically set themselves up to step on a rake like in the cartoons, and whacked themselves in the face of the rake handle. And that's basically what happened. That said, I was also my self surprised by quite how thoroughly awful the flation numbers were once you dug into them. Yeah, I mean, and you point us out, how you know, the various head banks and other outward to put out different measures for core inflation, and it had made it seem like core inflation was under control. But actually all of those measures now sticky price inflation, trimmed, media or rising. Yes, and that's really not what very many people at all had been expecting. So these are all the numbers that a year ago, when we were still having a debate about whether this was transitory, people were pointing out, look, these core versions of inflation still aren't that high. This is transitory, and that was a valid argument then, and unfortunately what's now happened to those numbers shows this is really going to be difficult to bring down. The other critical thing, I suppose is services inflation, and goods inflation is indeed coming back down. Services is coming up by more than enough to counteract it. Services is a much more important part of the economy than it used to be. That is again very disappointing for many people who are hoping to see something different. Now markets are pricing in the potential for a one hundred basis point in this next week. Is that a little too far fetched? I mean, it was the CPI that made the Fed move last time. It was there is nothing more important than the CPI for the Fed at this point. Obviously, unemployment is still at such an encouraging level. The labor market is so strong that that provides no reason for them not to hike. It's all about inflation at this point. I personally think that hiking by the full hundred basis points would carry some risk of looking as though they're running scared, desperate and could therefore undermine itself. So I would bet if I had to even odds on a seventy bits rather than a hundred, we will probably if they want to make it a hundred, they will find ways to leak it to our colleagues or competitors between now and the announcement. So I'm not sure it's worth spending too much time agonizing over that because it's probably going to become clear. The key that bothers me, which I don't think has been looked at carefully enough, is how quickly can the FED turn around and start cutting. There has been a belief, which isn't an unreasonable one from from what we've lived through in the last decade, that there would be problems with either employment or with a sell off in stocks would prompt the FED to retreat pretty quickly. That argument seems flimsy these days. I am almost inclined to say it's gone. I mean, immediately after the last fo MC meeting, FED funds futures were priced so that the rate in January of four would be lower than the rate it's going to be by the end of this month, which is a remarkable suggestion that this is a transitory tightening, effectively, that we're going to be that far into reverse by then. At this point, I think it's the suggestion is that will still be a good percentage point higher that this is a so that probably is more important for the long term than whether the Fed decides it really needs to hurry up even more and go with a hundred. It's it's how long they have to stay at how higher level and how long are they giving these rate hikes to work, because we all know that it takes time, and it works in different parts of the economy at different rates and so on, And what are they looking at to see is it working in the broader economy? I mean, what does the seventy five basis point hike entail when it comes to filtering down through the banks and through the system and through loans and so on. Well, I guess the critical point for that is on shelter inflation the housing market. So yes, oil is more or less beyond the fits per view, particularly with the geopolitical uncertain at the moment. Shelter whether you're renting or buying, is so dependent on the rate at which you can take out of mortgage. That is a rate that shelter inflation is increasing. Worryingly, we all know that there are various markets that look quite bubbly for buying, which are already seemed to be turning. The FED needs to be sure that it's got the housing market back down again before it can desist. I think, and I suppose it has the double advantage Festival. It's a third of the index in round numbers, and secondly, it's the one where monetary policy really unambiguously has a direct effect. I think you need to see that trend reverse. People talk about real estate a lot when they know anything about it. Otherwise they talk about a lot. How much higher rates deter people from buying, cause people to stop putting houses on the market, all the rest of it is probably the single greatest issue for us CPI at this moment. John, do you see a scenario at all were inflation continues to rise even as the Foe continues to hike. I mean, that's basically what we got this month. Could we get it again next month ahead? I need to come down very slightly. Yeah, I can imagine that. I think it's unlikely. I would still, barring something horrible in Ukraine, I still think the peak for headline inflation is probably in because of oil. It's difficult for it not to be. If inflation stays like this for another couple of months and you get another round of wage negotiations coming at the turn of the year, I can imagine headline inflation getting above its peak. From earlier this year, we are starting to see that wage price spiral a tiny bit, and we were seeing Amazon pony up now a little at least for seasonal delivery. Drivers were seeing more and more strikes across the country. That I mean, that's one of the fascinating, imponderable questions is obviously the balance is going to move from capital to labor to some extent, but the balance has moved a quite remarkable way towards capital, and unions are weaker, less able to assert themselves than they've been in a century or so. That means that you can perhaps overstate how much that effect is going to happen, and membership is still tiny relative to the labor force. I think wage pressure is on balance likely. But again, this is one of the imponderables we'll find out about this country exactly how intense that is and how far it takes inflation. So, John, what is the question that for J. J. Powell is pondering tonight. I do feel somewhat sorry for him, and I'm very glad I'm not a central bank here. He has been so good as to admit that the FED made a mistake last year. That colleague Mike mackenzie was commenting earlier today that saying that inflation was transitory last year is going to go down with the subprime market is contained from two thousand and seven. They all got one, you get one, yes exactly. He probably will be giving some thoughts to I don't think that's his greatest one. It's about how they signal for the future. I think the dot plot where the FED governors can use it as a signal for their intentions. We get a new dot plot next week. I suspect that the Fed will take the chance to tell the market listen, you are wrong. We do not think we are cutting next year at all. And if you see a dot plot where their expectations for the Fed funds rates for the next few years rises significantly, that could be another really tough moment, tiny bit of chatter about England. If you wouldn't mind, you're just back. Yes, and you obviously saw a transition. He saw the transition from Boris Johnson to Liz trust I was I saw that. I saw that transition, and I came home just before another transition from another Liz. Yes. Yes, there are over sixty million of us to choose from, and apparently Liz trusses right best we can manage for being Prime Minister. So and now it's her chance to see what she can do. Obviously, the Queen's passing is a big moment. It can only be plenty of opinions about it, but it's a big deal. It was quite big of her to shake hands with me Guinness thinking through. But if we could go on to further this, let's let's not talk about the rather vexed awful history of Britain and treatment. Will she be able to carry out the policies that she's promised. My best guess is that she won't that promising tax cuts was I hope she's going to surprise me positively. I took a dim view of the way she handled that campaign because she was basically promising something she was plenty clever enough to know that she wasn't going to be able to deliver. Yes, she must have known, and you know that's distasteful. Quasi quatteng another bright guy. He was a really guy before, Yes, and you know, very talented guy who knows what he's doing. I imagine we have a very difficult situation, a very febrile situation that does give him a certain amount of room for maneuver, a certain ability to do something completely different from what was expected if the circumstances demand it. I mean, how garsenals what in place is going to be next year in the UK, But I mean we could. I mean, the UK has very particular, serious reasons to be worried about inflation, some of them self inflicted, but let's not reopen the Brexit wounds too too widely, and some of them a matter of bad luck. The currency is under pressure and the energy. The Bank of England I think, was very commendably honest predicting that there's going to be a recession, that the economy will be smaller at the end of next year than it is now. I think it's probably right to get everybody into a defensive crouch. And I think both quasi Quatting and this drust of probably smart enough to know that if they take some pain now, the key thing is whether they can get the economy recovering enough to get people thinking the direction is correct by the next election, which doesn't have to be for over two years still, and that that is possible, and that's that's their aim. But it's whether they have enough communication ability, which I think it's fair to say this trust is greatest weakness. She is not like Tony Blair or Boris Johnson when it comes to communicating. Whether she has the communication and political skills to get the government through the next year or so when the economy is going to be really bad. I mean, the question really is does she last longer than Boris Johnson, who didn't even last long If she can't win another election, she won't at the moment. Not that Keir Starmer is exciting anybody, but Labor looks more electable than it has done since Blair. And if the economy doesn't go considerably better than seems likely at the moment. The betting has to be on labor to win bound that would be it's it's quite something. But Liz Trust this very interesting piece to As Raphael wrote, Margaret Thatcher as a minister was really very unimpressive. She was education minister. She was best known for canceling free school milk. Well, I wasn't there. I actually was Maggie Thatcher, the milk snatcher she used to be, and reasonably when I when I was five, we used to get given a bottle of milk in the middle of the morning, and when I was six that stopped. People weren't happy about children, so so she generally didn't seem to be that good a politician on the basis of how she did as a minister in the early seventies. Justice Liz Trust really doesn't strike me as being a particularly special good politician on the base of a record to date, and that helped people underestimate to people really didn't know quite what they were dealing with until and she was aware of that too. Yes, and I think Liz Trust is a very different person in many ways. But I think she is also somebody who benefits from being easy to underestimate. Bloomberg opinions, John Authors, pandemic labor force trends have been fascinating, but Bloomberg opinions. Justin Fox discovered one trend that predates the pandemic that tells us a lot about the US labor force. He joins me, Now, dry leaners closing down were literally almost at half the amount of dry leaners that we were at back in two thousands, so there were more than twenty eight thousand, then now there's sixteen and a half thousand. It points to several trends, though not just our assumptions. So let's go through some of them. Why are dry cleaners closing well? So I initially looked at it because obviously the pandemic has been really it was tough on lots of businesses when things completely shut down, and now even as restaurants are full, fewer people are going to the office, and sort of the long running trend towards dressing more casually when you do go to the office seems to, at least in my experience here at Bloomberg, accelerated over the course of the pandemic. So I was expecting that there would be this plummet at the pandemic. And then I looked at the data, and this is from the Bureau of Labor Statistics. Does this thing called the quarterly Census of Employment of Wages that keeps track of how many establishments of different kinds of businesses there are. And it definitely accelerated with the pandemic, but it's basically been dropping at about two percent a year at least for the past two decades. So you see it all around New York City. Your local laundrect closes, your local directing it closes, and it's very sad. I had always chalked it up, at least in recent years, to venture capital phones and hedgephons buying up real estate and not caring if the real estate was empty or full. But it turns out that that's not actually the main way. Yeah, I know, I mean New York. It was rising in the number of and this is Manhattan. Actually in Manhattan, the number of dry cleaning laundry establishments was rising through two thousand eighteen, sort of the opposite of the national trend, and then it dropped in two thousand eighteen and two thousand nineteen and then even more during the pandemic. I think the dropping in the two eighteen two thousand nineteen is all the e p A this new standard. Well it's not that new. It was I think put in the Federal Register back in two thousand six or two thousand seven, basically banning the use of the chemical and I'm going to say it wrong per klora whatever in apartment buildings, and lots of dry cleaners in Manhattan are in the basements of apartment buildings. You can do dry cleaning without it, and they're more and more of these sort of organic dry cleaning places that avoid it. But I think for a lot of older dry cleaning establishments that was sort of the last straw. They had to stop using it by two thousand. You also figured out that obviously some of this was a trend that we're seeing in immigration. Yeah, I mean, this is basically more hypothesis than something you can really get date on, but it is known that Korean Americans in particular are wildly overrepresented in the dry cleaning business. Um and and you know, it's just one of those classic an immigrant group comes over, develops an expertise, other family members, friends come over, I mean, the problem with the Korean American community is the big Korean immigration wave ended a long time ago because South Korea is now quite affluent and it's also not growing, really has very low birth rates, and so that immigration wave ended a long time ago. The kids of Korean American dry cleaning owners, I would guess most of them are have gone off to college and have fancy careers, and so we clearly there's this whole bunch of aging dry cleaning laundry owners who don't really have an obvious person to hand off to. How much is cost an issue, if at all? I mean, obviously we've seen a huge amount of a lation, and some of that has been services inflation. But it turns out we don't really spend that much on dry cleaning in the end. I mean, we we spend a very small amount of overall consumer spending on it. Although you know that I cite numbers in my piece, and that's just all spending on laundry and dry cleaning outside the house. Back in nineteen fifty nine, which is when the data starts, it was half of a percent of all consumer spending. Now it's point zero seven percent. Part of that is just because everybody's got well not everybody in New York, but everybody in most places has washing machines at home now. So it's less that people are doing less of whatever. It's just that it's been shifted from something that people paid someone to do outside the house to do it inside the house. Because I mean, one interesting thing is that inflation in um dry cleaning and laundry has been higher than overall inflation, and overall inflation is pretty high, and and that's been true for years, and it's definitely true over the last two years. You also found out, and this wouldn't be any surprise to anybody, that the highest concentration in the US is in New York City with twenty nine one thousand residents. The lowest, obviously, is only one point six per hundred thousand residents, and that's in Pema County, Arizona. I guess it's self evidence of why there are so many in New York. But are we seeing more of a decline in New York than we are elsewhere? I mean, it's just a totally different chart. In New York. It's it's was rising, doing really well, and then this plummet. Pema County is Tucson, So it's partly the weather and the kind of jobs there. It's not a big, really white collar jobs place, and it's tons of retirees, and you know, other places with lots of retirees are relatively low on it. One interesting place with really high number, especially of workers in laundries and dry cleaners, is Clark County, Nevada, which is Las Vegas. And I guess that. I mean that's more people washing sheets and other linens for hotels and stuff. Newberg Opinions justin Fox. Don't forget. We're also available as a podcast on Apple, Spotify, or your favorite platform. Chinese President She's in Paying made his first trip outside China and Hong Kong in three years this week. Originally, his first international trip was supposed to be Indonesia in November for the G twenty, which is extended invites to President Biden and President Putin as well. This wizard to Uzbekistan for the s CEO Summit or Shanghai Cooperation Organization gave you the opportunity to meet face to face with Russia's president and give the world an opportunity to assess China's position on the war Bloomberg's Clara Ferrera Marquez joins, Clara, what did we learn from this visit. It's a really interesting opportunity for us to take the temperature of this no limit partnership. So they had met in February, if you remember, just before the start debajing Olympics um and this is the first time that they had met since then and since particularly the invasion of Ukraine. And what we saw was an asymmetric relationship having become even more asymmetric. So we saw Putain really bending over to say that he understood what he said the Hinda's concerns, recognizing China's balanced position, mentioning all sorts of trade figures but getting really very little, if anything in return. Now, that's what we saw. But we don't know what happened behind closed doors, and likely never will. So it's quite clear that President Seas and Things wants to give signals to the international community. Is there a chance that he said something different or took a different tone with Putin behind closed doors. Well, as you say, it's that's sort of unknowable, isn't it. But it was interesting to me that there were a few really low hanging fruit that she could have given Puttin at this meeting. For example, they could have advanced some sort of agreements, even a memorandum of understanding around parrots. Siberia too, which is a gas pipeline, a really important part of Russia's shift to the east, and they didn't do that. So even though Russian officials had talked it up as being close, it didn't actually materialize. There was nothing concrete, no numbers, and I think Putin could have really done with that. However, the theater is important to allowing the two men to be seen together, you know, around a very large circular table, but all the same together without masks. I mean, all of that is very important too, and allows Puttin to play this at home. It was interesting to see Putin take the position of subordinates, because that's really what happened in the way he said that he understood Beijing's questions and concerns about his invasion of Ukraine, and he also made mention of the US and its allies movements in the Taiwan strage, which has annoyed Taiwan obviously, but that presumably was and olive branch to Beijing. In other words, is he subordinate now? Association thing. Well, I think it's certainly clear that Putain has never been in a weaker negotiating position, and I would I would really put it that way. I mean, if you think, as you say, the optics of the meeting, and it was very odd how we we we had it coming through, We had some feed and we really just saw that the initial comments where Putin was very clear to call him comrade to make all these concessions on Taiwan, as you say, talking about a foreign policy tandem, which is quite interesting word a word of China did not repeat back to him. And in fact, what we what was she telling him that he would work with Russia to inject stability and positive energy to a world in chaos. So that was not particularly well availed reminder of what she really needs, which is stability. Does it tell us anything about ss appetite for what I don't want to call it war, but some kind of operation in Taiwan. No, I think at this point that is really hard to read into this. I mean what we would say is obviously through the whole Ukraine campaign, China has been taking notes. It's learned a lot of lessons in terms of economic resilience in terms of military preparedness. I think here all we've seen is that he's willing to continue this balancing acts. He certainly won't leave Puttin in the cold, but with the policy of Congress a few weeks away, he also isn't willing to abandon his pro Russian neutrality if you call it to come any closer to Putain. Will she have promised Puttin anything? It's unlikely we'd find out if he did, or at least until we saw something on the ground, if he from some any kind of military support or anything like that. But I mean, it sure doesn't seem like he did. I think that's very unlikely. So China does not in general have allies, for example, military allies that in North Korea. UM, they are very happy to run joint military exercises as Russia joint naval patrols. They really have never signaled the desire to go any further than that. I also don't see why she would promise anything. Why Why would it be in his interest to do so? Because he is providing just enough rhetorical support, just enough verbal backing, without running the risk of incurring secondary sanctions. Clara will wouldn't change his mind about the G twenty after this, or does he have so much of an ego that he wouldn't turn up again with world leaders continued to speak, even though it's quite clear that he has to very much Paris his words. Well, the G twenty is still two months away, so it could still happen between now and then, and remember that it won't be just the G twenty. Indonesia has also invited President Vladimierzoleinski of Ukraine. I'd be very prized if the war is still ongoing. If Slenski actually tends up, it's much more likely to be a remote connection. But all the same, I'm pretty sure that Putin would not pass up the opportunity to be there in person if Zelenski is making any kind of appearance. Um, and it is very important for put In, both domestically and in terms of protection to the global South, to be part of these large geopolitical contacts. You know, he really needs to be seen to be a leader that still comes still means business. We also this week got a huge raft of new sanctions from the United States on Russia. Given Russia's unique position exporting energy. Are the sanctions that had already been placed on Russia biting enough yet. Well, I think there's a lot of misconception about how sanctions work, and I think a lot of that was due to the unprecedented nature of you know what was imposed early on. This sort of pless ora of financial and trade punishment effectively cutting off Russians never been done for an economy of this size, so people expected instant rewards, and unfortunately that's just not how sanctions work, especially when you're dealing with a major commodity exporting economy and you haven't actually sanctioned those commodities. What we are seeing now is that these things are trickling down. The oil sanctions with the EU oil sanctions will come into effect, the oil price cap will come into effect. All of that is beginning to buy. We've seen quite substantial reductions in the Russian budget. We've seen a drop in Russian energy revenues and particular in August as as the prices have come off because remember you know, the war. At the beginning, they were selling less, but the price is very high now. We also have a global cooling, global economy that is cooling. Chinese demand is coming down because of COVID lockdowns and other other factors. So it is by thing I mean that Russia, however, can sustain a lot of tate. We used a fantastic piece comparing South Africa sanctions from the nineteen eighties and what we're being today and basically painting a picture of the types of lessons we can learn from the South Africa sanctions. Give us a little bit of a summary of what you found out when you went back to look, so full disclosure. As part of the reason I did that because that's where I am from. I grew up in Caton, and I was there for thees and all this was going on. But the interest here, I think, is not to draw a sort of perfect parallel. In fact, staid earlier, there are no real perfect parallels with Russia's sanctions situation today. The interesting thing about South Africa is a that it was a commodity exporting economy, so there were lots of loopholes. But because of South Africa's fragility going into the worst of the sanctions, which really come in because of its economic fugility, was already an economy that was uncompetitive and inefficient because of variety of distortions at the side regime had introduced. The sanctions were very important. They were very important contributors because it was already dealing with this clorotic economy. And that's I think the really important message for the Russian case, which is that you are already dealing with an economy that is barely growing at one two real disposable incomes are already shrinking even before we got to the invasion. Under sanctions sort of followed. So far Russia has managed its external debts. There is a kind of constant looming default, but we never actually see Russia default on mons. Is it coming this year? I think the default here is very it's very different to pass, you know, even sort of South Africa's ciscal constraints. I mean, Russia has created to some extensive a ciscical fortress. It's not for lack of ability to pay, or rather, it's not for lack of cash, and they're not paying their debts. So I'm not sure it's it's as helpful an indicator. It's probably more an indicator of just how isolated Russia has become. What I would really watch in terms of how constrained they are is where the budget is allocated. How import substitution is going, And the answer is it's going quite poorly. If you look at the auto sector, if you look at computers and computing, anything to do with technology at the brain drain, those will really be of things. That is where we will see the real hit. We saw a huge change this week. We saw the Russian army retreating. We have proof of that. We know that Ukraine has been able to advance, and we also saw some descent within Russia, which is maybe a little bit unusual. I mean, fifty municipal leaders and perhaps more criticizing Vladimar Puddin and sort of putting pressure on him to back down. I mean, is that as huge an event as it seems? So? I think you're right. Two things have happened that are very important. One is the strategic defeat, and I think we can you know, obviously lots of things are changing on the front line, et cetera. This is still a moving picture. But the counter offensive and the speed with rich pressure has collapsed is unquestioned. The turning point in the war certainly an inflection point, and it is a strategic defeat for pushing and one that is very difficult to explain at home, and we really caught them the beginning of the week struggling to find a narrative to match this, not least because Puttin over the weekend had been completely silent on it, so he was busy inaugurating Giants Ferris Wheels. And what we saw was this surge of discontent on particular programline nationalist channels and telegram, which is um if you think about how restricted Russian social media has become. Those channels a huge following. We saw some television to some extent for people really questioning, you know, what are we doing here. We haven't even got full mobilization. We're calling this a special operation and it's not working. People wanted answers, and then we also saw the expressions of dissent, as you said, among the mayors, among the local leaders. It's still too early to say whether that will really filter through, but it has begun to put pressure on him at a time when vladmore Putin has very few answers. He needs more material on the front, he needs more manpower. Who's really running out as people, A lot of men who have done their first story of duty don't want to come back any extension of conscription will take a long time to feed through to the front. I don't think that necessarily means we're just about to press an easily a button. But suddenly he is in a pretty tight spot and we'll need to decide whether he's ready to take the political costs of the math mobilization, really putting the country in the economy on the Warford Clara Ferra marquees. That does it for this week. We were produced by Eric mollow Till next time on Booberg Opinion h